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  3. American Economic Review
  4. September 2007
  5. Labor and the Market Value of the Firm

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Labor and the Market Value of the Firm

  • Monika Merz
  • Eran Yashiv
American Economic Review
vol. 97, no. 4, September 2007
(pp. 1419–1431)
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Abstract

What role does labor play in firms' market value? We use a production-based asset pricing model with factor adjustment costs and forward-looking agents to explore this question. We posit that the hiring of labor is akin to investment in capital and that the two interact, with the interaction being a crucial determinant of the dynamic behavior of market value. Using aggregate US corporate sector data, we estimate firms' optimal hiring and investment decisions and the consequences for firms' value. (JEL E22, E24, G31, G32, M51)

Citation

Merz, Monika, and Eran Yashiv. 2007. "Labor and the Market Value of the Firm." American Economic Review, 97 (4): 1419–1431. DOI: 10.1257/aer.97.4.1419

Additional Materials

JEL Classification

  • G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)